Corporate heads in the sand

Global warming is about risk and uncertainty. It is beyond reasonable doubt that the world is warming and that human carbon emissions are a major contributor. The risks of destabilising the climatic equilibrium, under which humanity as we know it has developed through the 11,000 years of the Holocene period, are now escalating rapidly.

The glaring omission in current national discourse is any mention of these risks.

The credible climate scientists have been sounding urgent warnings for some time. There is virtually no one addressing the real risks. The science on an issue this complex will not be settled for a long time, but that requires even greater prudence in managing risk and uncertainty, particularly where climatic changes may be sudden and irreversible.

Sound corporate governance requires boards of directors to act honestly, in good faith and to the best of their ability in the interests of the company in perpetuity. They must also ensure risks are identified and suitable systems put in place to manage those risks.

Global and national institutions are now indicating that global warming is one of the greatest risks we face, in both the short and long term. Thus, its risk management should be a major concern and responsibility of the corporate sector, a responsibility the sector in Australia has steadfastly refused to acknowledge.

Recent public pronouncements by some corporate luminaries are of particular concern.
David Murray
, chairman of the Future Fund, has opined that carbon dioxide is not a pollutant, that there is no correlation between CO2 and global warming, and that the amount of ice in the world is slightly increasing, not decreasing.

Belinda Hutchison, chairman of QBE Insurance, stated that the recent natural disasters in Queensland had nothing to do with climate change, as demonstrated by “research received".

Dick
Warburton
, chairman of the Board of Taxation, Citigroup and other public companies,
Peter Farrell
, chairman of Resmed, and Geoffrey Lehmann, former chairman of the Australian Tax Research Foundation, reiterated in a Quadrant article minority scientific opinion accepting that CO2 emissions have a warming effect on global temperature but implying that the sensitivity of temperature to increasing CO2 concentration was far less than claimed by majority scientific opinion.

Related Quotes

Company Profile

The bottom line was that “adaptation to adverse climate change, if and when it does occur, may be the best and only viable strategy".

These categoric statements stand in stark contrast to the opinion of major science academies and key scientific organisations around the world that most of the global warming of recent decades can be attributed to human activity and that urgent action is required to reduce emissions if potentially catastrophic outcomes are to be avoided.

If we take serious action to reduce emissions, the cost is likely to be a manageable 3 to 5 per cent of gross domestic product, increasing the longer action is delayed.

If global warming turns out to be as the scientific majority believes, with major adverse implications, we are as prepared as we can be to minimise the effects and to adapt to those we cannot avoid.

If the minority view proves correct, with minimal climate impact, we end up with a cleaner, less polluted and healthier environment.

If we take no action and the minority view proves correct, it is business as usual. On the other hand, if the majority view proves correct, the world faces catastrophic outcomes totally unprepared, with an impact potentially worse than the Great Depression, World War I and World War II combined and a global carrying capacity of fewer than 1 billion people.

The impact on Australia would be particularly severe.

It is reasonable to assume that the public statements above are reflected in the corporate approach to global warming being taken by organisations with which those individuals are involved.

Sound governance requires that directors take a balanced view of risk and uncertainty. To propose a strategy of either denial or wait, see and adapt – in light of current empirical evidence and the balance of expert advice – is a serious breach of fiduciary responsibility, both corporately and nationally; a breach only too evident in the business approach to carbon pricing.

It is high time major Australian corporations acknowledged the real risks we confront, took leadership in implementing genuine precautionary measures urgently, and woke up to the opportunities these present.